Central Bank Digital Currencies: Digital Currency or Digital Control?

by Nicholas Anthony | FedSoc Blog

Money is changing. Central bankers and other policymakers from around the world are working to reinvent money as we know it through the creation of digital national currencies known as central bank digital currencies (CBDCs). Yet despite the time and energy invested in creating CBDCs, it’s not clear how this endeavor will benefit citizens. Rather, CBDCs are most likely to serve the interests of governments by increasing financial surveillance, decreasing financial freedom, and expanding the role of the government in financial services.

So, what exactly is a CBDC? In short, a CBDC is a digital national currency that is a direct liability of a country’s central bank. Typically, discussions of CBDCs revolve around the retail model, where a CBDC is designed for consumers, but there are also other models designed for financial institutions to use behind the scenes. At first glance, this description probably won’t capture the attention of the masses. Whether it be through tapping a card or using an app, many of us spend money digitally every day. What is different with a CBDC, however, is that the government would ultimately be the one processing those transactions.

So rather than have transactions spread across banks, credit unions, credit card issuers, and the like, financial transactions would all be centralized in the government. For this reason, the creation of a U.S. CBDC would pose a huge threat to financial privacy—the greatest since the enactment of the Bank Secrecy Act and the establishment of the third-party doctrine. Further, with so much information in hand, a CBDC would enable the government to restrict financial freedom in countless ways.

Although some members of Congress suggest that CBDCs are largely theoretical, that couldn’t be further from the truth. According to the Human Rights Foundation’s CBDC Tracker, 11 countries and the Eastern Caribbean Currency Union have launched CBDCs; 39 countries, the Eurozone, and Hong Kong have CBDC pilot programs; and 68 countries, the Economic and Monetary Community of Central Africa, and Macao are researching CBDCs. Read Full Article >